european banks, which in turn lend to each other and land to other countries in europe. we are lessorried about that now than we were a few months ago, but just last week ireland -- the state on bank in ireland again got into trouble. so the financial system i think is stronger, but it's a vulnerable and as the macro economy adjust and move towards recovery so wishes a week and hope for continued strengthening of that financial base. thank you. [applause] >> does anybody ever any questions? i think we've got some time for questions right now.

[inaudible] [inaudible] [inaudible] >> again, the default rates are speaking of specifically on which program? on camp? this is something that is important to talk about because a lot of people have looked at the prospect that many of the modified mortgages will not pay through and so that is defeat of

the program. the show doesn't work. and i think that's really not the way to look at it. when the fdic pioneered modification at any mac federal bank when we were in september 2008. and when and not if of months or our fiduciary obligationas to maximize the proceeds for the receivership. we have to do it mpb test that secured the home price declines, if it did we default and how that would work out. and there we assumed a 40% we default rates. and so, you know, any programmer to fall rate that comes in under 40% that still works. so even under this type we default rates we found 20,000 so mortgages that can still pass the mpb test. but why is that? the one that can be modified in foreclosure to pain for you ay very high foreclosure costs. the cost foreclosures 20% or

more of the value of the property. they're getting rid of the deadweight cost is very important. you know, we're just now getting some figures in fari falls for the hand program. they think they we release the fires last week and they were lower than analysts had estimated. they're going to b wanted to double digits. ultima should ke a 20% or more, that would not be surprise to me at all. the thing to keep in mind is that the models used for their test and assets to an mpb test also calledfor we default rate in the 30's and 40%. so there are going to be we default. it doesn't mean it's not a good program. and there are strict cost test, the mpb test that are played to the funds before they're proved for modification. [inaudible] >> the question relates to

season. one of her sides you did differently and i think one of them was the private loans. it does not cut down anywhere near like the others. is there any commentary they are decided the obvious risk, the fact that the unemployment is the way that it is, that lenders are recognizing a much greater chance of people knocking on the the student loans? >> that is certainly part of it. as you know, there's been a lot of turmoil on the lender side of the market. so it'a coination of both a think while that shakes out. and you know, there's recely been more bad news about the way institutions that are attracting students use these programs. so there's a number of factors in that case and i think a structural problem is my belated to crisis per se.

>> anybody else want to ask a question? >> i am not being facetious when i asked this question. however, i've had colleagues at corporations, many friends that are the bank and other smaller banking industries and they've all said to me, we were forced to take this money. we never needed it. i've never been able to reconcile, so being an pension industry that may have concerns. but what is that whole argument? why is everybody saying that? [laughter] >> well, one is at the time no

doubt there were financial institutions have felt they were sufficiently capitalized him and that didn't need -- they didn't want government support. it wasn't required. and furthermore it would possibly destigmatize and if they were to accept, which is what it was important to treasury to get broad participation program. the fact that most of -- a good chunk of the banks i bought out, most of what the government thought is a sign of strength he doesn't necessarily mean they didn't need it when it was made. but i think that in the moment it's hard to say who was adequately capitalized and who is not and i think that was a tactical decision that everyone will participate in anything they expected they would be some angst about that, but in hindsight it doesn't appear that it tersely disrupt the anyone but two d. >> i would just like to point out that in the fallof 2008 it

was an extraordinary turmoil. susan meant that ted spread the good 20 basis points, its normal level is 20 to 40 basis points. that consumption of financial market had a very powerful effect on the real economy. i men, during the recession the economy lost 8.4 million jobs. both 7.29 of them are lost after the financial crisis. we saw the physical volume of steel production in this country decline between august 2008 in december 2008 by 55%. so these are the situations were dealing with and there was a lot of extraordinary policy action. and you know, when susie didn't mention the fdic offered a program to temporarily guarantee non-deposit debts, the temporary liquidity guarantee program which has now been found that it had but the fact is all of these extraordinary policy responses were in response to a financial

crisis that was a very real and significant threat to the real economy. and that explains in hindsight you can say what would have been not that but at the time the situation was being dealt with. >> anymore questions? [inaudible] >> the amount of foreclosures still increasing, the nemployment rising, white indicators do you say that you're successful or not successful in accomplishing what the fed, federal reserve andmb still have to do? >> well, the question for the session was the extent to which the financial crisis is over. clearly applied for stressing in

the mortgage market is related not just to the problems in financial institutions, but more broadly to unemployment. and you know i'm not intending to make a judgment about success either way, but the continued problems in the mortgage market is much related to unemployment as to the availability of mortgage lending. and that's the problem that a t.a.r.p. program has tried to move to address by allowing violence to be made to people who are hopefully unemployed for a finite period. and allow them to stay in their homes. >> questionnaire asking, even with this extraordinary government assistance, we still had coming in though, a great recession. and the question is is the counterfactual. how bad would it have been in the absence of the government system. i can imagine it being quite a bit worse. and that is a question that's raised in the recent paper by

mark sandy and alan binder, i think they concluded that the federal that the government assistance program were successful at mitigating the real economic effects of the financial crisis and so that i think we can they we avoided the worst. but i think that also put a premium on the current efforts wards regulatory reform, you know, it pretty extensive package of reforms has recently been passed. we're still the process of determining what is going to happen with capital requirements and other sorts of reforms on the heels of the year at and i think what we hve to keep in mind is avoiding financial crises is a very, very important task for their extremely costly and high premium should be placed on avoiding them. and so that is the econoc calculation that we made at the time and that we're still making with the regulatory reform effort.

>> anybody have any other questions? okay, i'd like to thank everybody for attending. i'd like to thank richard and susan for giving such a great >> we conclude our coverage of the conference with remarks from defense comp troller. he talked about spending and financial accounting issues from the point guard point guard. this is minutes.

he joined the department of defense with 24 years of experience, from 1978 to 2002 and 2004 through 2009. without further adieu i'd like to introduce mr. mccord. thank you. [applause] >> thank you, very much. joel, i'm glad to be here, and glad to see you have some interest in this topic as well. given the size of the defense budget, it stands to reason the budget, one i think everybody ought to be concerned about. before i start talking about the process of managing the budget in what i'd call these interesting times is how i think the proverb goes, let me

first talk about what budget we're managing. as you can see, our budget is pretty substantial and it's grown to $5 billion today, 5.50 not incluing the cost of war, because the future costs are uncertain and tend to skew the picture a bit. we'll go to that in a seppingd. -- in a second. what i'd like to draw your attention to, and i don't know if this chart really shows you that or not, but the line we think is flattening out. probably will continue to flatten out compared to these projections, the growth rates going ahead if there's any growth at all, now if i could go to the next chart, we'll show you the war funding on top of that which is coming down, as all of you know we are on

our way out of iraq now which is going to have some reduction in costs. we've had this year. the surge is now being completed in afghanistan. afghanistan is a much more expensive place to operate than in iraq. it's much more dot get things in there. so as you draw down in iraq and afghanistan even though we're drawing down in iraq and building up in afghanistan, the cost ratio is not really going to cut down on a one-for-one basis because the operateing in afghanistan is more than iraq where we have a more established logistic chain and progress with which to work. so this is the sides of the budget. now let me talk a little bit about what's inside it. pretty much as all the martha stewartal agencies have done since the start of the administration, we have had a

defense review in our case, which is panned dated by law, but all the other intelligence communities, dhhs is just in the process of completing their first one, so everyone has done a review. and in our review, we had -- i'm not sure if this is mandated or just considered a -- an alliteration because we had the four p's so this is what it was called the four p's prevail, prevent, preserve and protect the all-volunteer force. so these priorities were kind of, if you -- as we like to say at the 30,000-foot level, the base of what we're trying to do and in our budget we turn these into more specific programs and more specific proposals that kind of flow from these, so let me turn to more of a budget per

se. the budget this year submitted in february, still with the congress now, our proposals we grew under four themes. i guess four must be a good number, too, since we had four priorities. the first one is the most important one, taking care of people, which is the highest priority. this can mean a couple things. this is compensation, pay raises, benefits for our troops and this is how we care for our troops, the wounded warriors. this is something neither what i would call a benefit or program per se but it's managing uptempo, for those of you who follow things, around i hope all of you -- if you've been reading your papers you might notice at least you haven't read. is about how eight or nine straight years of having the army employed pretty intensely

has ruined the army, having reading that story because of the management job our army has been doing in the face of this to pang and do the best they can as -- even as people are backing out and that's part of taking care of people, too. it's a management program because money can't create time, and that's kind of a little bitting factor when you have people that only certain people are deployible. taking kay of people also means not just the people in uniform. it means the families and the dependants and family support is a big priority of the president and the first lady and of course, a big priority of our military leadership. and we have some new benefits and some improved benefits. education is something -- education for dependants and as well as training education in kind of a small sense for

military spouses, especially those trying to have portible careers as they move around from state-to-state, we have a new program that has proved somewhat of a cost decimating challenge but tuition benefit, especially for licensing certification-type classes, so that's all part of it. taking care of people and their families. the second part, rebalancing the military and their families, something secretary gates is known for as well as anything. he has talked about this a number of times in using these broad brush cat fwoirs. nobody pretends these are precise, but he has made a point of trying to reprioritize a little more away from future affairs to this t war we're in today, and he's taken some criticism for this. he points out that in rough terms about half the budget,

half of the modernization program is buying things mainly suited towards high-end future conflicts. about 40% of the things we buy are useful in a high-end conflict or more, something like an afghanistan or a number of other paces a c-10 airplane, being able to get places is useful no matter what the intensity of the level of con fligget. only 10% or so is devoted towards these exclusively smaller conflicts. so he feels that he's on course. and that it's appropriate to do some rebalancing. so we talked about rebalancing. a food question would be rebalancing to do what? first of all, this is more in the future oriented or higher-end side in what is called anti-ack access --

people who have long-range missiles that can keep you away from their coastline. infiltrater for homeland defense. what's known as coin counterinsurgent operations, counterterrorism, all these things that are very important missions, help in iraq and afghanistan. building capacity of partner in nations to work with us or ideally instead of us, so they can do something that we don't have to do. this is a small amount of our budget, really. it's only kind of in the billion-dollar range out of $500, but enormous attention gets paid for it by our undersecretary what's called building partner capacity is a good example of the struggle we have to kind of balance to solve problems. it's not always a question of dollars but the flexibility.

having authority to soovel new problem that wasn't foreseen and written into the law previously. that's where rebalancing takes not just good ideas but working with cops to get the law changed to give us authority we might lack today. one of the things that's important, the president that is one of the more specific things the president repeatedly mentioned was preventing and countering -- securing nuclear materials. that's another rebalancing effort, something we need to do more of and cyberoperations, dealing with cyberthreats as you know we have a new command that was a recent addition to d.o.d. called a cyberdemand, so these are things we are doing already, but things we need to get better at. that's my characterization of what rebalancing means. now rebalancing means, and this is where the secretary's -- the

current fight. he has expended effort to get more recon answer and into the theater, in iraq and afghanistan and the rapid fielding and production of an reduction seems almost like a generation ago was only two years ago, -- seems also a squen ration ago of the humvees and now because we're in because were inh the terrain is not well-suited to the mrap all-terrain vehicles and atvs. so those things have been a huge priority of the secretary to rebalance, to get things done as quickly as possible about the people that are fighting today. but in his mind is also part of rebalancing. it's not so much of money though that's part of it, but leadership, intention and focus of people to make sure that the things he think should be at the top of the priority list for

getting things done are the top of the priority list. now the next thing that's probably most closely related to the topic. and cover for me what and how we buy. again, this is something secretary gates is being very well known for. start with last year's budget. last year's budget that the focus was mainly on the large programs, the modernization program. and that meant a couple things. terminating things that weren't working well. presidential helicopter development was probably the biggest influx. and not point basically starting over. a flawless terminating things that were working fine but we already had enough of them did not represent our best investment dollar at that point and that was in particular the most notable last year of the f-22 fighter as well as c-17 transport aircraft. so these are things that we made the argument the market airplanes come up with enough of them and it was time to end those things. and lastly, then it's probably the most notable discussion i

guess would be the word with the hope that actually started a couple years ago so-called alternative are second engine for the joint strike fighter that we don't need, that we are to have a competition and we have a winner and in his view buying two of everything are having is not his ideas how we should have proper incentives for having a competition. so that kind of reform and that in particular is an ongoing dispute with congress, but it also means performing what and how we do business also means other things, not just major weapons programs. it also means as i was alluding to before kind of the security system site, working with other nations where it's clear and this comes up almost every day in our office, that are not as agile and flexible as we need to

be assert policy down the hall which we were choosy solving problems whether you're working in pakistan or yemen, all kinds of places like the with the toolbox of authority we have got quite everything we wish it would be. there's things that affect dod that affect everybody. how we use energy is something the have made some substantial progress actually on the facility site over the last decade or so, but there's still a lot more we can do. lastly, supporting our troops in the field. part of that as i alluded to before, the mrap us and giving them the best equipment in the surveillance, things like that. it's also little things like giving them internet access to contact the families back home. but you know, one thing that is very difficult, especially from our death of comptrollers to do the budget is to predict precisely what is needed in these fluid situation where there's changes in the size of the force as with the afghan

surge that i referred to earlier. there is maybe change the pace of operations, changes in locations where people are, so maybe we thought they were going to place. ultimately those are not really decided of course by the comptroller. they are decided by the secretary of conflict with the president. so it's hard to budget for those very far in advance and the chart we have a couple of galicia the wartime costs is kind of like those things are in precise to get in the future. we know we don't know whether any of the really going to be. now, the budget i like to call kind of the demand side. we'll get back to the counterbalance here in a second. if i can go to the next one. so the next it wanted to show you the defense does not exist in the image related to a number of factors.

.. and as you can see these numbers indelude cost of war. so given the numbers in iraq and afghanistan is part of that rampup you've seen since 9/11, so as you can see from the chart, it's about as long as we've ever had an upswing in defense.

this, of course,, does not serve to predict the future. but it's one of the things that informs our thinking that it's unlikely this is going to continue to grow forever, and the secretary is trying to get us prepared to deal with this situation coming to an end. why do we think that is? partly because of something you're all aware of is that we have a definite. -- a deficit. if you look over time, rev knews have not been rising particularly, but spending as gone up and down. it came down when we had, un, kind of a very -- very good times in the later 90's. it's back up now. you can see part of that reason in the bluish and kind of purple categories, the benefit programs go up when the economy gets bad. compensation, medicaid and things like that.

compensation has also been high because of the war. checked this a while ago. this is the first time since the great depression that the deficit is bigger than the entire defense budget. that you could eliminate the entire department of defense and still not budget the -- still not balance the budget at this point. the parts that congress decides is the top two shades of gein. the defense discretionary spending and all the other discretionary spending the things congress acts on every year. but we're uncomfortably close to the line even where some things are automatic. social security and interest on the debt. which we'll talk about, going to be heading up inexorably right now.

there was there was a study, some of you might have seen this "the washington post" knelt important enough not to just put a reference but a chart in the ed tory. which is a few seeing a chart in the editorials. but federal debt no surprise, higher interest rates means higher spending in defense at the end of the clinton presidency before 9/11 and after we had to balance the budget again and had had very strong economic growth, the boom of the late 90's, our debt was down to about 1/3 goodell, which was pretty good -- g.d.p., which was pretty good for us. now it's certainly not the place you want to be when you're getting close to when the baby boomers are going to start retiring in mobs.

but the gdp is based on a lot of work but -- if you have certain asutchingses you can have a range of asufpkses about the tax cuts which have been in the news, all the tax cuts from the previous administration whether they are extended or not whether the a.m.t. sticks, are extended or not. you could have a wide variance and maybe a very bad story about debt-to-g.d.p. ratios going to uncharted territories for this country. so all this is on the secretary's mind and he has made no secret this is impairtive of why we need to look at our budget in the ways we're doing now. that being said, the secretary believes that the defense budget must increase modestly in real terms to sustain an army or military at war, which is what we have now because

we're still at war in afghanistan and likely to be for some time, so we have these two impairtives. the fiscal of our nation is reducing the resources, probably that are going to be available to us but the secretary feels cutting the bulge et, the best way to cut the bum et is cutting the size of the force. while we have troops in the field that they and their familys are already stressed after years and years of deployment. so i've talked a little bit about what we've called the demand side, the missions of priorities of the defense review and mission of priority in our budget. i usually speak a little more to the defense of audiences so i won't assume you've read all these documents but if you have, for example, the defense review, you might foits as you read through it that there is really not a single case or instance where the q.d.r. are

strategic document proposes we give up any line of business and stop doing anything that we're doing. makes it pretty hard to reduce your budget. that would be a nice way to reduce your budget. there would be good things if you could reduce things. make the workforce smaller or something which the secretary has said we cannot do at war. so that somewhat constrains our ability to cut the budget can leads us to how we can be more efficient at doing what we do. so what's asked for our people in uniform is high. earthquake in haiti, flooding in pakistan, doesn't necessarily have to be conflict, but our folks are called into demand. so we don't build the budget based on the fiscal picture i talked about, but we need to be mindful of the difficult fiscal

situation and it's sort of not -- it's hard to be because of the debt and resession and difficulty we're in financially. so the secretary decided not to wait physical the next year's crike to take action. may, some of you may have noticed the -- he talked about some of these problems and these issues, this difficult fiscal situation, the need to make our department more efficient, and not just for financial reasons but also to make us more efficient and effective as an operation. so that was in may. june, the deputy secretary held a press conference where he laid out more specifics about what they were telling the major components that being the army, navy, air force and those who had -- that they were giving them targets and they were assimilated by those who

work on resource allocation and brought back to the leadership. last week the secretary made another announcement, a -- concerning different parts of this. and the specific parts were basically the message of starting at the top, so it was about freezing at the moment with a look at reducing in the future gentles to admirals, d.o.d. executives, like myself and both civilian ones who are career and political ones at well and announced specific recommendations about particular agencies such as our network integration agency and one of our major unified commands, the joint forces commands. so we now have people working on specifics and looking at how to freeze and then reduce our growth in civilian and our

growth of employees, especially at the top as well as looking at contracting. the rational for this is pately as described. regularring the budget has grown substantially giving us a little better -- than if we had ever had any growth. the feed to sustain structure while the military is at war and leads us to believe that if you don't make the four smaller that the cost of operating it with new technology and other things is doing to grow a little bit above inflation. we've seen that pattern persist no matter who is in charge over a 50-year period. so we have a reason to believe it's there and real. we also have some savings from the procurement of -- things like the secretary decided we would stop doing. the way we're moving now, in particular, is what -- for lack

of a better word, and i think we have to -- there ha to be a better word. overhead. i think it was the comedian crosby said i vemible that remark. but i would be overhead. it's the family housing our family military lives in. we want it to be high quality. so there's not an overhead per se but the people out there at the tip of the spear, this is where we need to go for savings and where we think we can find some but we're not saying everything on the support side is bad at all. it's just with we need to go to find some savings. if i could go to the next chart. so the things we're looking at as we next area of -- we're looking at contracts.

we're trying to take it back to the level, take it back to where it was a few years ago, the percentage of the work that is done by contractors. the secretary felt it was not quite in balance and trying to get it from the nearing 40% level back down to a quarter or so. at the same time, we're also looking, as i said before, to look, and we just had a meeting on this. across -- the senior people across the d.o.d. about the need to start at the top of this so people understand. and the secretary's office felt this was maybe the best way to promulgate a culture change so that seniors -- senior executives are part of it. so we're going with all our major leadership to look for savings there as a starting point. we're also looking at thing that maybe aren't efficiency and e6k9iveness aren't always

about money. no one's under the illusion that if we -- reports, we can save money. but i can certainly tell you in our office we spend a lot of times on so many these things that probably aren't worth the time spent on them which probably doesn't boost morale. but it was report that had people -- we're taking a hard look at that. same thing with boards and commissions. we've had a substantial growth on these, an outside look is always good but are these things we can afford as many of as we've had before and re-examining our organizations again. this is just something just this morning the secretary's chief of staff was exhortingtous do, a -- an internal clean sheet of paper

look at things. this applies to all our organizations not to just look at can you do with less people at the top with one less general or s.e.s. but it's also what is your organization doing? is it doing things that are really -- is there anything you could shed or something that could be moved from one place to another to make us more effective? so we're going to be looking at that in preparation for the next budget. if i could two to the next chart. so. one point the secretary has made a couple times that i don't know that i've strongly here. i need to. is that all the efficiency efforts he's undertaking are not in his mind primarily to save money. he said in front of any number of audiences now, including congress, that the idea is to

find some savings that we can then generate into growth that history tells us we need to have a little growth to sustain the war-fighting side. if we're going to find savings on the support side to transfer that. it was the department's view to transfer that to the air force where most of the -- instead of demanding them as tribute. so the secretary has told the services they can keep their savings but sort of mandated where he want it is savings to come from. and 4e79s it to be moved over to the operating side to achieve that, because you can't get all your savings from just anywhere you want to. so our hope is to maintain this top line to provide growth in the areas where we think growth is needed. in addition to the deputy

secretary, our increase increasing management ability. he's made this point a number of times includeing in public that it's not just to save money and it's not just reducing people too reduce people because you think it looks good to reduce people. we think there's an opportunity make our department more agile and by having a management structure flatter than we have, i would say comp troller is not as big as most, so this is something that we may not have the same view on as everybody else, but there are a lot of layers in some parts of the building. rts of the building. and secretary feels we could do with a little less and the secretary feels we could do with a little less. but this is the concept that we will take move them to the war fighting side. it's not visited everybody's you in washington, of course, that we, they should be any reduction

in our budget. there's no guarantee that just because that's the second his position, that's what will actually happen. it may be that we are under pressure from congress or even from the president the next budget may not have, may not preserve the topline they are trying to preserve. but if that is the case, i doubt it will go up but it is more likely i think it will be lower than we're currently projecting. i think it's all the more essential that we do these things, that we will, no matter what happens, it will get us in better shape to do with what is coming rather a flat topline, maybe a declining topline or maybe even a growing topline as our plans currently sits from last year. and we have ample evidence that the president takes our security into account. those of you have studied the budget will recall the biggest danger this year with a presence budget was released in favorite came out, the security agencies tended to get a little growth while the other agencies did not. so that was no accident of

course. if the president is not going to necessarily give us a one size fits all rule in every agency, take x.% mac cut. because we've already seen that and it's clear that he understands what we're doing. and he strongly supports what the secretary thing, but also he does take account of our security needs. that being said, i mean, given the fiscal stimulation we do understand it is likely that some reduction is coming. and those of you, probably all of you followed the deficit reduction commission that the president signed into being by executive order, when asked about that he said everything is on the table. i don't remember if the question was asked even about defense specifically, but we got the message and we understand that certainly no surprise that the president feels defenses on the table like everything else when the commission makes recommendations later in the year. but we understand that's a

possible that we just don't know where it will come out. but i think about how it comes out, we are in better shape and we are well served by doing this exercise. now, i wanted to turn to some of the things we've done already in terms of making ourselves more efficient. a couple of these, applying commercial practices, these are things probably many of your familiar with doing, this for a couple of years now. augmented travel system, i think a lot of these by that i heard of but are new to me personally as someone who's over on the legislative branch they didn't use the systems in past year so i'm not a customer like it or else of the defense travel system and some of these other systems, and the more abstract to me that i was over there. not being served by them directly. we also have now, we have

automated systems for processing receipts. i don't know if i want to digress on this. we have done a lot of new things in the recovery act to try to streamline, or increased accountability of our processes. we have also, also been doing insourcing. this although it is in the news again, we started last year and we already have that underway. base closure, where any of the 2005 around, ending up with a big building coming up. you can't miss it. but that's again, it's difficult for all involved to rationalize the ever suction on the port side, but, unfortunately, we have in the past decade not had a better way to do it. so we do the best we can. we also of course have on the

support side of the house had enormous effort on the enterprise resource planning program. i guess -- not sure what more to say about those. you know, the army in particular is very confident about their system, some of the new things are rolling out now, but we still have a long way to go. new programs like that have tended to take a while to get going, and they're pretty involved, given the scope of our operation. if i could turn to the next chart. in addition, we try and, you know, probably the big money is on the things that apply to the army, entire air force, so those

are business processes in the erp systems and things like that. it's very important, you know, i think sort of pound-for-pound you get more, more negative press if nothing else from one or two bad expenses of thing that happened in the theater. so this is a big priority of my boss as calm so as well as undersecretary carter, looking at how we can improve business operations in the battlefield. and this is, of course we have some lessons learned from years of doing this now. we have made some good strides in afghanistan on reducing cash can have a more electronic transactions. we have done more on emissions. train personnel is a challenge, i have to say, that is perhaps an insurmountable challenge because you can train people, but is probably going to continue to be the case as people in place like afghanistan are only there for a year. and, of course, we could make

ourselves more efficient by sending, you know, sergeant jones over there for two, three years straight but that's not really fair to him. so i think we're sort of stuck with the reality that no matter how we train people, we're always having a pretty large turnover of folks. and so there's always people over there that are during these new processes. not all of whom have a background in budgeting and financial management and acquisition. but you do have people given the turnover that you need, and i think he doesn't turnover just a people can have some time back home to be with their families that you're always going to people are learning some of these processes no matter how well we think we understand the back you. the folks out there are the ones who have to implement them. and i just say that is one example of, well, i guess my thibault is today that it really is an art, it's not a science. the flexible that the folks together, the warfighters need

with accountability. to take one example of that, i do know how many of you are familiar with something called serve, the commanders emergency response program. sometimes referred to as walking around money. it's not exactly that, but the idea was really born in iraq that getting commanders money to solve problems on the spot, and they might have someone to fix a well or any number of things, whether a viable tool as a nation as general mcchrystal often puts it that way. we doesn't efforts on there. there. we have a new database to improve the accountability for what is happening because we do have two report to congress for the return for the flexibility we get of having money that can be dispensed at lower levels than is normally the case. and we have, we have stood up a new management team, congress does last year they thought this user more control. i get a i was out in afghanistan

riesling, and the troops out there that we had too much already. so this may be no surprise that if you have something that's supposed to be a dynamic program, which is, which is managed at a tactical level, not directed from on high and less is very high dollar amount of which usually is not, you wish they hadn't been. so people read that and want to react and say it needs more control. and again, the troops in the field, not all of them, you know, were trained in managing money and reporting on how they spent money, or having to execute this and they feel there are too many controls already. so this is again part of the balancing act. we were told by congress that we needed to do more control on this we have set up a new management group here in the pentagon which i co-chair, and we're trying to do this without slow the process down inordinately, but it is a balancing act.

i think that's all the points i want to make on that, just that it is comic it is a difficult process, and always the first kind of priority, the first priority in more integrators is never going to be the business side. it has to be protecting people, protecting people's safeties and allies, getting into things they need to do the job. a key support of that helps us to do that is to try the as efficient as again. especially like afghanistan, really brings that home because from a logistic side, the more accurately you can figure out what you need, you know, the fewer supplies you have to move there. and through people you put in harm's way, so there's a real-world connection that people get with efficiency is not just about, yeah, not just

numbers on a paper to people. when you get to wartime operation. if i can get to the next slide. another part of the comptroller family that deals with business operations is the defense auditing agency. i don't know, some of you probably aware of their situation, some not. they've had some difficulty in recent years, have taken a lot of criticism from congress on a couple of issues. we have a new director in charge, and we're very confident with pat. were happy in the direction he's going and we think he is making good strides at dcaa. the work that he does, the work they do has demonstrated savings over a billion dollars in fy can so far. so we are very mindful in terms of the concerns congress has

raised for dcaa. we are trying to find a reasonable balance to protect, within our comptroller organization from the reductions that we need to take, like everybody else in terms of the size of our organization. if i can get to the next one. one of the things secretary did in a press conference last week, i guess a week ago today, that i attended, and i know one of the questions he was asked was, yeah, why are you going to succeed this time, because it's not like the first time anyone has proposed we do a little insourcing or be more efficient. a couple reasons for that, i think. one, the secretary is a very determined individual. he is very consistent individual as well. if you look at last year's budget, this year's budget, you will note the remarkable

consistency of the priorities and the approach. so he doesn't like to think of something make a speech and forget about and move onto something else. so we have that, and we have other people very much, focused on this. we have the incentive, as i was talking about. we have troops in the field that needed the support we can give them. on one hand. where the fiscal situation, which is also an incentive as it were. you can kind of see this rock rolling down the mountain toward you. it's maybe time to start running. so that's kind of what we are doing. we have because of the budgetary growth, the department enjoyed in the previous decade, we have maybe better cushion. it's sort of like, you get stricken with maybe some disease. if you're in good shape to start with you in better shape. we are in pretty good shape as we start this, and we do have that going for us.

and then finally, we have, we all know the reductions are coming. as a matter of fact, congress is to working on this year's budget, but the house and senate want to cut $7 million from our budget this year. the other, eight. those things are kind of hard to miss. we have a message that cats are coming and we just don't know exactly how much, but the direction is pretty, it's pretty hard to miss. so, just to kind of summarize what we're trying to do, it's the secretaries you that he's not try to cut the top one overall but he is trying to reprioritize within the toppling to move more money into worth fighting sight out of support site, not because, again not because the functions and the tacit people to do in support are bad things at all, believe me, we can do the more

efficiently. and that when we've had a decade of growth we probably have not had the since the efficient as we could have been. but we think we can do better. and we intend to be we are also trying, again, i said this is a big function to make ourselves more agile in the process, and just as a major operation with somewhat of a flatter organization that can maybe move a little faster. god knows one thing that struck me as i've been there is the coordinating we do with each other inside the pentagon. and just to wrap up, it really is a question of balance. there is no perfect answer. for how much possibility to have. i mean, i've been around this town 25 years now, and you see this all the time. you know, so we do something wrong and people, how could that have happened, and tighten up the controls and people complain they can't get anything done, and you loosen them to give people more flexibility. there's a bit of a pendulum

swing, and so as with that alice, balance is an issue here. and i think if i could just go to the last one. the secretary said we know that we need to show and to really demonstrate that we're doing everything we can to manage these resources well, because we know what tough time the country's going to do what tough our finances. so with that i would be glad to take any question. , if there are any. >> or not. >> on behalf of aicpa i would like to thank mr. mccord for giving his presentation.

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